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LIC Housing Fin resting on a strong foundation: Nirmal Bang
21 Jul 2012, 01:51 PM
LIC Housing Finance Ltd (LICHF) is one of the largest housing finance companies in India promoted by LIC. The company launched its maiden Global Depository Receipt (GDR) issue in 2004. The GDRs are listed on the Luxembourg Stock Exchange. The main objective of the company is to provide long-term finance to individuals for purchase/reconstruction of new/existing flats. We are positive on the company owing to the fundamental improvement in earnings from FY13E onwards benefiting from re-pricing and higher developer loan build up. The companys net profit is likely to grow at 29.9% CAGR over FY12-14E.

Investment Rationale

It has been observed that housing finance companies (HFCs) have been consistently gaining market share in the mortgage market as compared to their peer banks over the last five years. According to a report by CRISIL, the market share of HFCs in disbursement growth has increased to approximately 51% in FY11 from approximately 36% in FY07. This is a result of better and controlled focus on a single market, which is further enhanced by better customer focus. Moreover, we have seen that as compared to banks, which have been facing stress in their asset quality, HFCs have been able to maintain their asset quality at comfortable levels.

Increasing market share in the mortgage market

LICHFs market share has consistently witnessed an improvement over the past five years. The company has been able to increase its market share from a mere 5% in FY07 to 10% in FY12, benefiting from the strong distribution network of the company. The total mortgage market has witnessed a CAGR growth of 15% over FY07-FY12 whereas LIC Housing has seen a CAGR growth of 29% over the same period.

Valuations

LIC Housing operates in the mortgage financing business where growth and asset quality have proven to be healthy in the last few years. LIC Housing is one of the top players in this mortgage market with a 10% market share.

Driven by strong disbursement and
 
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